It is no secret that people have a lot of investment options than ever before. You can literally invest from anywhere in the world in any market as long as you have a smartphone in your hands. It is also no secret that people have lots of ways in which they can invest. People can start investing using some of the best micro investing apps which allow them to start investing with only a few dollars. But the problem is that many people don’t know how to invest. In fact, people do not think about investing when they are young. This is because people do not think about how they are going to live once they retire. These are some important things that you should think about when you are earning.
However, in order to start investing, you should know a thing or two about it. For that, you can read some of the best investing books that are available in the market. You should know everything about your financial situation before you start investing. One should have all the information about things like their earnings, tax cuts, and financial goals. If you are well aware of all of these things then you can create a great financial plan for yourself. But there are a large number of millennials that are getting interested in investing. They are realizing that investing has the potential to give them the life of their dreams. All that is good but what they don’t understand is how much they should invest. When it comes to investing you have many ways in which you can invest as less as $100 but that’s not the point.
This article is for the people who don’t know what percentage of their income they should use for investing.
What is a 401(k) and How much do I invest in a 401(k) account?
If you know anything about 401(k) then you know that it is associated with retirement. For those who don’t know what a 401(k) is, it is a retirement account that is offered to employees by their employers. In this account, money is deposited by deduction of a small percentage of your monthly income. This percentage depends on the 401(k) plan offered by the employer. In some companies, you can put as much as 6% of your salary into your 401(k) account whereas in other companies you can only invest 1% of your income. But the best part about this plan is not your savings but the contribution of the employer towards your 401(k). If you have a 401(k) account your employer will also deposit the same amount or half the amount that is being deducted from salary into your 401(k).
This means that he will also be depositing a dollar for every dollar or 50 cents for every dollar that goes into your 401(k). Many people do not understand the benefits of this type of account so they don’t have one. But keep in mind that 401(k) means extra money in retirement savin2gs for free. So do not miss the opportunity if your employer offers you a 401(k). However, you may think about what would happen if you join a different company. There is an option for that too. This option is called a 401(k) rollover. By using this 401(k) rollover option you can transfer funds to a new 401(k) account offered by your new employer. If not, you can transfer those funds to your IRA (individual retirement account). According to your monthly expenditure you may choose to invest 2% or 3% of your monthly income.
How much of my income should I invest? Is 10% enough?
This is the most popular question among the people who are trying to start investing but don’t know how much of their income they should invest. The popular opinion of many financial experts is that one should be investing anywhere between 10% to 15% of their income. This also sounds very reasonable as anyone regardless of their monthly income can afford to invest at least 10% of their income. But this is not as simple as it sounds because investment means many things. Often people tend to confuse investments with savings but they are not the same. In fact, you should be using a portion of money from your savings to invest. So putting 10% of your monthly salary into investing does not seem to be a good option especially if your income is not too high.
What you should be doing first is building up other important things like emergency funds and other important things. If you do that you will have money if something happens, like if you get into an accident or if your car breaks down. Another important thing to consider before investing is debts. Do not invest in anything if you have high-interest debt, clear that first, and invest in emergency funds for a good 6 months before getting into investing. You can invest any percentage of your income into investing as long as it does not affect your life. Know that you cannot expect to live the same lifestyle if you keep putting money into investments and other stuff. So it all boils down to how much you are comfortable with investing.
What is better investing monthly or yearly?
This depends on your preference but it is actually better if you go for monthly investments. Because this will give your money a lot of time to work for you. If you go for the yearly income you will be investing your money in the month of January and be saving money for another year before you invest it again. During this period you will be losing a lot of time in which the money could work for you to give you a higher return. The other problem with saving money for an entire year to invest is you will have an urge to spend some of it. When you do that you will not be investing as much as you would if you took the monthly investment route. But again it all boils down to what you are comfortable with investing.
Investing is a great way to earn some money to reach your goals quickly in life. But how much you should invest is a big mystery. You can always use some timeless investing tips that will help you keep on the right track. However, you must realize that whatever you are investing in must not affect your life when you are in an emergency. If you are young then it is better to take risks in investing as you will have a lot of time for retirement and not much to lose. But if you are already late into investing then you should probably need to put in more money to catch up.